US OPEN-FORM SALVAGE AGREEMENT GIVES SHIPPING SECTOR NEW OPTIONS

The law of salvage is a phenomenon recognized only in admiralty law. Salvage developed in response to societies’ needs to encourage maritime commerce by reducing some of its hazards.

The law is based on the premise that a person who voluntarily saves another’s property from sea perils is rewarded for the efforts in the form of an award from the owner of the salvaged property. In contrast, under common law, when shoreside property is in peril and is saved by a volunteer, no remuneration is required.

While the principles of maritime salvage are universally accepted, the practical aspects of applying the concept to maritime ventures that have gone asunder can be complicated. On March 1, 1996, the Society of Maritime Arbitrators at New York (“SMA”) published a new U.S. Open Form Salvage Agreement (code name: “MARSALV”) that may alleviate some of the difficulties associated with the law of salvage.

DiCritieria under General Maritime law Under the General Maritime law, a salvor must satisfy certain criteria to qualify for a salvage award. There must be a maritime peril from which the property could not have been saved without the salvor’s efforts. The salvor must provide assistance voluntarily, and efforts must be successful. If property is not saved (“no cure”), the salvor receives no renumeration (“no pay”).

Compensation based on various factors Compensation is based on factors such as: labor expended, skill promptness, energy displayed, value of the property employed by the salvor and the danger to which it was exposed, risks involved, and the value of the property saved.

In the United States, federal district courts have exclusive jurisdiction over salvage cases. However, jurisdiction is seldom exercised as most salvage operations are conducted under private contracts containing arbitration clauses.

In modern times, the majority of contractual salvage operations have been conducted pursuant to the Lloyds Open Form Salvage Agreement (“LOF”) that contains a London arbitration clause. This agreement allows salvors to conduct salvage operations without negotiating prices.

The “no cure, no pay” contract is signed prior to the commencement of salvage efforts. At the completion of the operation, the salvor submits its claim to the property owner. If challenged, the salvor will seek a salvage arbitration award from the committee of Lloyds in London.

New accord offers more flexible terms
The new one-page MARSALV agreement, in contrast to the six-page LOF, offers more flexible salvage terms. The MARSALV agreement is clearly written and free from legal jargon. The agreement is also designed for use in commercial vessel salvage situations, as well as those involving recreational craft. This new agreement is not solely a “no cure, no pay” contract. Rather, the parties may elect other options such as “fixed fee”, or “per diem/hourly” rates.

The MARSALV agreement is also environmentally sensitive. The salvor is always entitled to compensation for actions taken to minimize damage to the environment.

Agreement provides for arbitration
If a dispute arises under MARSALV, it will be resolved by arbitration in accordance with the SMA rules. In the case of commercial vessels, the dispute will be resolved in New York. Recreational vessel disputes can be resolved anywhere in the United States pursuant to the SMA Rules for Recreational and Small Vessel Salvage Arbitration. In either situation, the arbitrators have discretion to award costs and attorneys’ fees.

The jury is still out on what effect the new MARSALV agreement may have on the present popularity of the LOF. However, those involved in international shipping should make their contract comparisons long before their ships and cargoes may require salvage services. Those interested in obtaining the MARSALV agreement should contact the SMA at (212) 587-0033.


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